(Reuters) -- Iraqi forces repelled a major counter-attack by Islamic State fighters at dawn on Wednesday in a district south of the Old City of Mosul, their remaining enclave in the city, a police commander said.

Dozens of IS fighters were killed in the operation to push back the militants, many of whom wore suicide vests, the commander told Reuters.

Residents said the militants seized a number of blocks in the Danadan district of the northern Iraqi city before being driven out in fierce clashes.

"Terrorists came from the Old City and attacked our forces using mortars and sniper shots. They managed to temporarily seize some buildings but we forced them to retreat after shelling their positions," said a federal police officer.

A Reuters visuals team heading to Mosul from the northern side reported intense artillery fire in the morning.

Another federal police officer said an operation was still underway to chase some Islamic State militants who might still be hiding in some buildings.

In an online statement, Islamic State said it killed 40 of the federal police forces deployed in west Mosul and destroyed eight military vehicles.

Iraqi forces on Tuesday reported progress in the U.S.-backed campaign to dislodge Islamic State from Mosul, announcing the capture of Zanjili, a district just north the city's historic center.

The Islamic State-held enclave in Mosul has shrunk to two districts along the western banks of the Tigris river - the densely populated Old City center and the Medical City.